Canada’s economic growth slowed down significantly last month, raising fresh concerns about the impact of Trump’s tariffs. On Friday, Trump said that he spoke with Carney and planned a meeting to negotiate a ‘new economic and security relationship’ after Canada’s upcoming election.
Statistics Canada revealed on Friday that GDP did not grow in February. This flat performance followed a robust increase of 0.4% in January, which had been the strongest monthly pace of expansion since April of the previous year. Economists had expected healthy growth at the start of 2025, and January’s uptick seemed to confirm that forecast.
Several analysts say that if there was no growth in March either, the annualized rate for the first quarter would stand at 2.1%. That figure is a little above the Bank of Canada’s earlier forecast of 2% and also higher than the 1.6% growth economists predicted in a recent survey. While this outcome would surpass those forecasts, it would still be weaker than the 2.6% pace recorded in the fourth quarter.
The Bank of Canada is scheduled to make its next policy decision on April 16. On one hand, weaker growth generally exerts downward pressure on inflation, which could justify rate easing. On the other hand, higher tariffs raise import costs and can push consumer prices upward.
Governor Tiff Macklem noted last week that the risk of a trade war could create inflation pressures, limiting the central bank’s room to lower interest rates. He said the Bank must ensure that Canadians believe price pressures will stabilize in the long run despite sudden price spikes caused by tariffs.
Uncertainty around tariffs had a powerful effect earlier in the year. In January, many exporters and importers stepped up their activity to get ahead of steep duties that Washington was threatening to impose. That surge helped boost January’s monthly GDP figure. But by February, the effect of those efforts seems to have faded.
According to Statistics Canada, the manufacturing and finance sectors still had some gains that month, yet real estate, oil and gas extraction, and retail trade suffered declines. The agency added that preliminary retail data for February suggests consumers tightened their spending for a second month in a row, pointing to reduced household consumption.
Trump and Carney have planned a meeting after Canada’s election day
Prime Minister Mark Carney, who took office on March 14, spoke with President Trump by phone last week. On his social media platform, Trump wrote on Friday, “It was an extremely productive call, we agree on many things, and will be meeting immediately after Canada’s upcoming Election to work on elements of Politics, Business, and all other factors, that will end up being great for both the United States of America and Canada.”
Carney released a statement about the conversation, confirming that he and President Trump will begin “comprehensive negotiations” once the election is over.
At the same time, Carney reiterated that Canada will continue imposing counter-tariffs, especially once the U.S. applies its new round of import taxes on April 2. Trump has billed that date “Liberation Day” and plans to unveil broad “reciprocal tariffs” aimed at multiple trading partners.
Canada’s national election is scheduled for April 28, and Carney is in a tight race against Conservative Leader Pierre Poilievre. The federal election has turned into a contest on how best to handle the American pressure. Carney’s Liberal Party enjoys a narrow lead in some polls, but it remains a close contest.
Carney’s government is critical of the latest U.S. moves, including a 25% tariff on automobiles and auto parts. On Wednesday, Trump announced that new auto tariffs would go into effect next week, calling them a major part of his plan to protect U.S. jobs.
Carney fired back, saying the measure is a “direct attack” on Canada’s auto workers and violates the USMCA trade accord that was negotiated during Trump’s earlier term.
Furthermore, Trump’s suggestion that Canada could become the 51st U.S. state has only increased political tensions. Canada has already placed retaliatory tariffs of 25% on about C$60 billion (US$41.9 billion) in goods from the U.S. It also threatens to impose duties on another C$95 billion if the White House does not relent.
Conservative Leader Poilievre has adopted a “Canada First” slogan, accusing the Liberals of leaving the country vulnerable to U.S. aggression by not focusing on making the economy more independent. Carney counters that the United States is “no longer a reliable partner,” and he believes Canada needs a new approach to relations with its neighbor. He said, “The old relationship we had with the United States, based on deepening integration of our economies and tight security and military cooperation, is over.”
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